Edited version of your written advice

Authorisation Number: 1012719448525

Subject: Amended winding up clause in your Constitution and impacts on deductible gift recipient endorsement and eligibility for tax concessions

Question 1

Does Version 2 of clause 7A if passed by special resolution and included in your Constitution negatively impact on its Deductible Gift Recipient (DGR) endorsement?

Answer

No

Question 2

Does Version 2 of clause 7A if passed by special resolution and included in your Constitution of negatively impact on its tax concessions?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

21 October 2014

Relevant facts and circumstances

Background

This not-for-profit public company was endorsed by the Australian Taxation Office (ATO):

• as a tax concession charity (public benevolent institution) from 1 July 2000 with exemption from income tax and concessions for goods and services tax and fringe benefits tax

• as a deductible gift recipient (DGR) from 1 July 2000 as a public benevolent institution.

The company was also registered as a registered charity with the Australian Charities and Not-for-profits Commission (ACNC), effective from 3 December 2012.

Previous Private Binding Ruling

The company sought advice from the ACNC and the ATO on the implications of the requirement by the Registrar for Community Housing in Queensland (CH) to amend their constitution.

CH required the company to amend its constitution to specifically state that 'community housing assets' will be transferred on winding up in accordance with the Housing Act 2003.

A proposed clause 7A clause was drafted as follows:

7A. Income and Property that is Community Housing Assets if Company Wound Up

7A1. This clause does not affect any other clause relating to the winding up or dissolution of the Company and relates only to the Community Housing Assets of the Company.

7A2.In this clause 'Community Housing Asset'', 'Corresponding Law', 'Housing Agency', 'Participating Jurisdiction' and 'Registered Provider' have the same meanings as in the Housing Act 2003 (Qld).

7A3. Each Community Housing Asset remaining after satisfaction of the Company's liabilities must be transferred as follows:

a) each remaining Community Housing Asset of the Company in Queensland must be transferred under s 37H(2)(a) of the Housing Act 2003 (Qld); and

b) each remaining Community Housing Asset of the Company located in a Participating Jurisdiction must be transferred under the Corresponding Law of that Participating Jurisdiction to:

c) the Housing Agency in the Participating Jurisdiction;

d) another Registered Provider in the Participating Jurisdiction; or

e) another entity as prescribed under the Corresponding Law.

A private binding ruling (PBR) application was sent to the ATO requesting a ruling on whether the amendment would negatively impact their Deductible Gift Recipient (DGR) status and eligibility for tax concessions.

The ATO issued a PBR notice of decision in July 2014. This decision concluded that the insertion of clause 7A as drafted above, would not negatively impact on the company's DGR endorsement or on its tax concessions. The PBR responded to two questions in relation to the first draft of clause 7A and answered No to both questions.

Question 1: Does clause 7A if passed by special resolution and included in the Constitution of the company negatively impact on its Deductible Gift Recipient (DGR) endorsement? Answer: No

Question 2: Does clause 7A if passed by special resolution and included in the Constitution of the company negatively impact on its tax concessions? Answer: No.

Current Private Binding Ruling

The applicant requested the ATO for a private binding ruling on behalf of the company, requesting that the previous private binding ruling (PBR) be amended to address Version 2 of clause 7A which had an additional sentence included at the end of paragraph 7A1.

The PBR requested the exact same questions as the first PBR in relation to the Version 2 draft of clause 7A as CH wrote the company advising that the proposed first draft of clause 7A of the Constitution did not meet the requirements of the Housing Act 2003. CH requested the constitution specifically state that 'community housing assets' will be transferred on winding up of the company.

A proposed Version 2 of clause 7A has now been drafted (words added to this version are underlined):

7A. Income and Property that is Community Housing Assets if Company Wound Up

7A1. This clause does not affect any other clause relating to the winding up or dissolution of the Company and relates only to the Community Housing Assets of the Company.

Any remaining assets of the Company on winding up or dissolution that are Community Housing Assets must be transferred under this clause and not clause 7.

7A2.In this clause 'Community Housing Asset'', 'Corresponding Law', 'Housing Agency', 'Participating Jurisdiction' and 'Registered Provider' have the same meanings as in the Housing Act 2003 (Qld).

7A3. Each Community Housing Asset remaining after satisfaction of the Company's liabilities must be transferred as follows:

a) each remaining Community Housing Asset of the Company in Queensland must be transferred under s 37H(2)(a) of the Housing Act 2003 (Qld); and

b) each remaining Community Housing Asset of the Company located in a Participating Jurisdiction must be transferred under the Corresponding Law of that Participating Jurisdiction to:

c) the Housing Agency in the Participating Jurisdiction;

d) another Registered Provider in the Participating Jurisdiction; or

e) another entity as prescribed under the Corresponding Law.

The ACNC issued a letter to the company in June 2014 advising that it would continue to accept the company as charitable if clause 7A, as drafted in the previous PBR, was added to its Constitution.

The ACNC wrote to the company in October 2014 that if the proposed wording in Version 2 of clause 7A is included in the company constitution, the constitution would be appropriate for ACNC purposes as a registered charity (public benevolent institution sub-type).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 30-45

Income Tax Assessment Act 1997 Section 30-125

Fringe Benefits Tax Assessment Act 1986 Subsection 57A(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 176-1

Reasons for decision

Question 1

Does Version 2 of clause 7A if passed by special resolution and included your Constitution negatively impact on its DGR endorsement?

Detailed reasoning

Section 30-125 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the conditions that an entity must satisfy in order to endorsed as a deductible gift recipient (DGR).

In accordance with section 30-125 of the ITAA 1997, an entity that is seeking to be endorsed as a DGR is entitled to endorsement if the following conditions are satisfied:

(a) the entity has an ABN;

(b) the entity is described in a category set out in item 1, 2 or 4 of the table in section 30-15 of the ITAA 1997;

(c) the entity is not listed by name in Subdivision 30-B of the ITAA 1997;

(d) the entity satisfies any special conditions for the category in which it is described; and

(e) the entity satisfies the windup requirements.

The company continues to meet the requirements in paragraphs (a), (b), (c) and (d) of section 30-125 ITAA 1997.

Requirement (e) - the entity satisfies the dissolution/revocation requirements

Section 30-125(6) of the ITAA 1997 requires that an entity must transfer all remaining gifts, deductible contributions and money received in relation to such gifts and contributions to another deductible fund, authority or institution on winding up or on revocation of endorsement.

Clause 7 of your Constitution (The Income and Property of Company if Company Wound up or Ceases to be endorsed) is in accordance with the requirements of the ATO publication GfitPack QC 16414.

The inclusion of the proposed Version 2 of clause 7A in the constitution, as required by CH, will not negatively impact on your DGR endorsement because it only applies to CH assets. Any other surplus assets will continue to be transferred in accordance with clause 7 of the Constitution.

Conclusion - Deductible gift recipient (DGR) - Public benevolent institution (PBI)

The company is entitled to maintain its endorsement as a deductible gift recipient pursuant to Section 30-125 of the ITAA 1997 on the basis that it continues to have a suitable winding up/revocation clause as required under condition (e).

Question 2

Does Version 2 of clause 7A if passed by special resolution and included in your Constitution negatively impact on its tax concessions?

Detailed Reasoning

The ACNC recently wrote to the company that the proposed wording in Version 2 of clause 7A to be included in its constitution would be appropriate for ACNC purposes as a registered charity (public benevolent institution sub-type). As the entity's charity status is not affected, eligibility for tax concessions for income tax, goods and services tax and fringe benefits tax will continue to be maintained.